Having the ability to think and speak freely is important to Finalytiq director Abraham Okusanya.

It is one of the reasons he founded the firm in 2011. Love or loathe his direct style of self-expression, Okusanya has no qualms about ruffling a few industry feathers. If some people take umbrage when he speaks the truth as he finds it, so be it.

He says: “I know if you kiss enough butts in financial services, you can make a few bucks. But I’m not in the business of kissing butts.”

Finalytiq works with product providers and advisers, positioning itself as a critical thinker that will challenge propositions and focus on improving client outcomes. Okusanya established the firm after leaving Royal Bank of Scotland, where he was a savings and investments manager.

“I quickly learned very little of the industry is based on evidence of what is likely to deliver the best outcome for consumers. Much is driven by vested interests of providers who simply what to flog stuff, even if it hurts clients in a big way.

“So I started Finalytiq to cut through all that. When you look at the deluge of academic evidence available on investing and retirement, for instance, the industry is often doing the exact opposite of what is most likely to deliver the best outcome for people.”

“I’m not in the business of kissing butts.”

Learning from the masters

Academic research clearly falls within Okusanya’s comfort zone and it makes sense, given both his parents were teachers. Ploughing through so many industry reports and academic papers at Finalytiq, how has Okusanya developed his critical understanding of them, rather than accepting them at face value?

“Academic papers are often peer reviewed and you can find multiple authors on the same subject to get a range of views. Then you look at the data and the methodology, and you try to find holes in it. You ask simple questions like: is this idea supported by actual empirical data? Does it work through various real market conditions, especially the extreme one? If it doesn’t, you discard the idea.

“Industry reports are a completely different ball game. If they are written or sponsored by a provider, often the vested interest of the sponsor overshadows rigour and evidence. And there are lots of PR consultancies paid by providers to write a load of nonsense.”

“Much is driven by vested interests of providers who simply what to flog stuff, even if it hurts clients in a big way.”

Sinking Sipp

It came as no surprise to Okusanya when it was reported last month that four Sipp providers have failed the FCA’s capital adequacy requirements.

Finalytiq wrote a controversial report in 2016 on the financial stability of Sipp providers, which identified many providers were struggling.

“All we did really was look at their accounts on Companies House. We took no prisoners. We named names. No, we weren’t paid by any provider to do it. And yes, we were vilified for it by the providers. They threatened legal action. But quite a few of them have gone up the wall since that report and there are a few more to go.”

Post-pension freedoms, ensuring people make the right choices and do not run out of money are key concerns. If people are opting for the flexibility of drawdown instead of annuitising, longevity risk has to be managed somehow.

Finalytiq recently launched its Timeline app to help advisers implement sustainable withdrawal strategies. “What we’ve managed to do is to convert the extensive research on sustainable withdrawal rates into a really cool tool that advisers can use with their clients.”

But does the slowdown in life expectancy highlighted in recent data have any implications for sustainable withdrawal rates?

“I don’t think we can read too much into the news that longevity improvements are slowing, although the trend is consistent with what’s happening in the US too. For people who are already in retirement or approaching retirement, they should expect a long one.

“Current cohort life projections by the Office for National Statistics [which take into account changes in mortality in later years] are a very good guide on how long they can expect to live.

“If you are relying on the capital markets, then the sustainable withdrawal rate framework enables you to take longevity into account and plan accordingly. If you don’t trust the capital markets to meet your income needs, then you simply buy an annuity.”

“We were vilified for it by the providers. They threatened legal action.”

Guarantees are still golden

For those who want to have their cake and eat it in terms of flexibility and security of retirement income, Okusanya believes a combination of annuity and drawdown is more likely to deliver a better outcome than guaranteed drawdown.

“The guaranteed drawdown products on the market are expensive and provide little or no inflation protection. I also question whether they will survive under extreme market conditions but, of course, the liability ultimately falls back on the Financial Services Compensation Scheme – which has no reserve. Perhaps people don’t have to worry about that.”

Okusanya recognises the role annuities have in providing security for risk-averse clients but sees them as far from perfect. He thinks people might want to consider delaying annuity purchases to avoid locking in low rates driven by current low bond yields.

“Will yields recover? Eventually. But it could be a long wait, and my worry is there’ll be very few insurers left in the annuity market by then. Many have already exited, the smaller ones are struggling and we are left with five or so providers now. And that’s not good for competition.”

Until yields do recover, Okusanya says drawdown seems like the practical solution for those who are not completely risk-averse. “But it’s crucial to have a robust approach to sustainable withdrawals.

Five questions

What is the best bit of advice you’ve received in your career?

Don’t follow the crowd. Do nothing, say nothing and be nothing, and you’ll never be criticised.

What keeps you awake at night?

Writing a book on sustainable withdrawal strategies for retirement.

What has had the most significant impact on financial advice in the last year?

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